What Makes the Internet Different?

A lot makes the Internet different  community, collaboration, commerce, and a few things that don't start with "c". James Cortada examines some of the more profound changes that will soon affect you as a manager.

This article is excerpted from chapter 4 of James Cortada's book, 21st Century Business: Managing and Working in the New Digital Economy.

This chapter is from the book

What makes the Internet different is that work and opportunities change from
those of the past, and often profoundly and swiftly. Take opportunities as an
example. One type of change concerns the content or work and knowledge because
information can be shared across the entire value chain quickly and cost
effectively. Schwab provides its customers with a great deal of information
about companies that they and other brokers used to charge for, with the result
that customers can now do their own research and then place their own orders.
Egghead Software began selling its products through the Internet, thereby
eliminating the need for retail stores (roughly 80 percent of their employees)
while providing information and services to their customers.

A second innovation touched on earlier in this book is the changing nature
of commerce, where business-to-business transactions have increased and become
more comprehensive via the Net. Now that initiative is being extended to
customers. Then there is the third innovation, the collaboration made possible
by easier-to-use software tools and the Internet to connect people and
processes, employees to customers and to suppliers. We can expect more of these
kinds of activities when they make sense. Will everyone rush to them? As I
suggested in Chapter One, there is a fundamental change underway, sweeping
across most industries at a fairly rapid rate. The only thing we do not know,
however, is exactly how fast. It seems everyone is commenting on the topic, with
most predicting rapid change, probably faster than it will occur. How fast is
irrelevant anyway. Companies are reacting to the Internet and adopting its
capabilities when it makes sense to their employees. If they guess wrong,
competition bites them, move too early and they make mistakes. Move at a good
clip, applying sound management practices, and a company arrives at a new way of
making money.

Sound management practices include taking the experience you have with
e-mail and networks and extending these to a larger pool of customers and
suppliers, using the Internet to link everyone who is part of a supply chain
closer to your value chain. The sound business practice is about taking measures
to maintain clean information files securely and finding practical uses for this
data. It calls for applying data mining techniques to use information one has to
improve knowledge or market conditions in real time. For a long period of
timeprobably for the rest of our careerswe will have one foot
planted in more traditional ways of doing business. With the other we will
initially dip a few toes into the new, then eventually the whole foot into
e-business.

We are now at a point where we can actually begin to see the pattern at
work, thanks to the actions of early entrants. At IBM, e-business experts began
uncovering a pattern of adoption by corporations in the late 1990s, a pattern of
sufficient definition that they began to think of these adoptions as waves. Each
wave has characteristics, and there are cases they could point to as examples.
So far, they have identified three waves. During the first wave, companies are
essentially operating as always, but adding Internet activities to enhance
revenue, speed to market, and product innovation. Organizations in both the
private and public sectors are interested in lowering existing operating costs
while simultaneously enhancing services to customers and clients. Market reach
is very much a part of this process. So firms use distance learning to lower
training costs, or provide customer service online to do the same, while
collecting some data on their interests. National Semiconductor, for instance,
does extensive data mining to help inform its engineers about what new products
to design, while state government agencies allow citizens to renew licenses over
the Net. But the key behavior seen in Wave 1 is near-term performance
enhancement.

It is during the second wave, however, that substantive change occurs, as
new business models emerge based on emerging technologies. There is more
extensive use of IT, new classes of intermediaries are introduced, and it is now
when global supply chain integration occurs. Outsourcing of noncore activities
accelerates. Value chains evolve into value nets. Firms are now deeply into
e-commerce as well. Existing firms reinvent many of their offerings. Those that
have done this include Bank One, Barnes and Noble, Charles Schwab, Cisco
Systems, Dell Computer, IBM, and UPS. In short, the transformation cuts across
many traditional industries. Other companies are born, the sorts of firms the
University of Texas study suggested. Some of the better-known ones include
Amazon.com, AOL, eBay, E*Trade, Yahoo!, and Priceline.com.

A third wave began emerging at the end of the 1990s, suggesting that even
more profound changes await managers. In this phase, businesses are totally
redesigned from top to bottom, while traditional organizational and industry
boundaries dissolve. These changes lead to new bases of competition and
obviously to new cost models. Everything seems very electronic. Figure 41
graphically illustrates the three waves. The learning point from this figure is
that one

The business literature about the Internet would suggest that everyone is
somewhere deep in Wave 2 or 3. Nothing could be farther from the truth. The
reality is different; firms live in various waves, and even portions of an
enterprise participate in various waves. IBM is an example. Some departments are
clearly in Wave 1, others in Wave 3. IBM's competitors are all over the
place, from Wave 1 through Wave 3, complicating the competitive response of the
firm since it must be effective across all three. This is the same challenge
other firms face, and why ultimately so many executives worry about the impact
of the Internet. These waves are simply evidence of the fact that firms and
economies are in a period of transition, with one foot in the old world and the
other in the new.